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June 6, 2013

Mexico and China have often seen each other as rivals as they compete for market share in the United States. However, this perception is outdated. Both countries’ economies have undergone transformations and now have the potential to play complementary roles. This was on full display this week when Chinese President Xi Jinping visited Mexico and came away with stronger bilateral cooperation on a range of issues.

Still, mutually perceived rivalry remains a challenge for cooperation in other areas. Nowhere is this more apparent than in Cancún, Mexico, where resistance to the construction of the commercial complex known as “Dragon Mart” has flared. Dragon Mart is a joint venture between Mexican businessmen, Chengkai Investment Company, and the Chinamex Middle East Investment and Trade Promotion Centre—a business promotion company under the supervision of China’s Ministry of Commerce. The Dragon Mart complex will function as an exhibition center featuring Chinese products and goods from other countries, including Mexico. According to the Chinese media, the project represents a $1.54 billion investment.

Promoters of Dragon Mart have stated that the complex will add 8,550 jobs, but it offers even farther-reaching benefits as it can serve as a point of communication for Chinese and Mexican governments and private enterprises.

Mexican manufacturers have overlooked the fact that Dragon Mart would draw Chinese business at a point when Mexico’s capabilities to export high-value-added goods, such as telecommunications equipment and automobiles, have taken off.

The project’s critics have claimed that Dragon Mart would ease the flow of inexpensive Chinese imports into Latin America, the Caribbean and North American markets. Negative reactions from domestic producers have contributed to local authorities’ recent decision to deny the project’s license, which is likely to cause further delays in construction.

December 11, 2012

There is a rising star in Latin America. And it is not the a member of the BRICs, but Mexico.

Mexico has received consisten attention regarding its security challenges, but things have started to change over the past few months. In August, Nomura published a report that forecast Mexico would become Latin America’s number-one economy by 2022, stating that “the recent relative outperformance of the Mexican economy to Brazil could prove to be long lasting."

That’s a controversial argument when considering Brazil’s explosive growth during the past years. While its recent economic performance has been weak, this does not imply that South America’s giant will not be able to recover. Or does it?

Brazil’s rapid economic growth was not only due to a favorable macroeconomic outlook and the timely implementation of much-needed reforms, but also, and more importantly, to China’s insatiable appetite for natural resources. The Chinese government has been progressively increasing its presence in foreign markets to guarantee a steady supply of resources, especially energy. This is critical for the Chinese Communist Party, as its legitimacy rests on providing good economic prospects to its population.

November 9, 2012

Mexico’s successful deep-water drilling of wells “Trion-1” (August 29) and “Supremus-1” (October 5) in the northwestern Gulf of Mexico has caused national euphoria. It has shown the country’s considerable oil potential and revamped public confidence in state-owned company Pemex (Petróleos Mexicanos), whose reputation had dwindled for the past years following a decrease in production, corruption scandals, an inability to stop criminal groups from stealing oil, and drilling failures.

The news has brought a much needed respite for President Felipe Calderón, helping him to balance a record that has been severely undermined over the past years due to his security strategy and the situation of the economy. In fact, the drilling of both wells would have turned into ammunition for his detractors had there not been any positive results, as it follows a 528-percent increase in investment for exploration. Now, however, the outgoing administration has had no qualms in affirming that the discovery may be part of an oil system with an overall production potential of up to 10 billion barrels of oil.

Yet, what has become a “golden egg” for President Calderón may quickly rot for President-elect Enrique Peña Nieto.

The high expectations produced by the discovery will be difficult to achieve due to Pemex’s lack of technological capabilities and the prohibitive cost of deep-water drilling. Indeed, it would be a mistake to take the successful drilling of the aforementioned wells as a sign that Pemex has recovered from decades of managerial excesses, corruption, vested interests, inefficient populist policies, and discretionary policy-making.

The negative effect of these factors, along with the government’s dependence on oil exports for revenue, have resulted in a severe decrease in Pemex’s efficiency.